Production from GSPC fields in KG basin faces delay

Nearly a year after beginning trial gas production and investing $3.4 billion, Gujarat's GSPC is yet to start commercial production from its Deen Dayal discoveries in KG basin.

The Gujarat State Petroleum Corporation (GSPC) started "trial production of gas from the field on August 4, 2014, but commercial production is yet to commence," an Oil Ministry official said.

The company is producing 0.6 million standard cubic metres per day (mmscmd) of gas from the field as trial production.

"As per the approved field development plan (FDP), natural gas production was to reach 3.83 mmscmd in second year and achieve peak output of 5.24 mmscmd in the third," he said.

Peak output of 5.24 mmscmd was to be sustained for 11 years before natural decline sets in and output slowly dropping to 1.68 mmscmd by the 20th year.

In June 2005, Narendra Modi as Gujarat Chief Minister had announced that GSPC had discovered gas in well KG#8, six km away from the Yanam-Kakinada coast of Andhra Pradesh.

At that time, he said it was the biggest discovery, with 20 trillion cubic feet of gas reserves, 50 per cent more than the known reserves of Reliance Industries' KG block D6.

Modi named the block in which the discovery was made as Deen Dayal.

The official said Deen Dayal West, the name given to the KG#8 find, was however certified to hold 1.8 tcf of reserves by the government's Directorate General of Hydrocarbons (DGH).

Gas production from the field was to begin in 2013 but technical difficulties delayed it.

"The field is possibly the most difficult field in deep sea anywhere in the country. It is a high-temperature, high-pressure field, making extraction difficult," he said.

Also, GSPC finds the current government mandated gas price of $4.66 per million British thermal unit not enough to make production economically viable.

The official said the company had told the ministry that it had received bids for buying Deen Dayal West gas for at least USD 8.5 per mmBtu in a price discovery it ran as per the provisions of the Production Sharing Contract (PSC).

It had sought nod to sell the gas at that market determined price, but "the government has informed GSPC to adhere to prices notified under the New Domestic Natural Gas Pricing Guidelines, 2014", he said.

The official said at a recent review meeting at the Prime Minister's Office (PMO), GSPC reiterated its stand of current gas prices not being viable for the field and had sought applicability of premium announced for future gas discoveries, to even existing difficult ones.

The government had while approving a new formula for gas pricing in October last year stated that a premium would be paid to new difficult discoveries.